by Michelle Conlin and Jessi Hempel, with Joshua Tanzer and David Polek,, Business WeekDecember 1st, 2003

Just a few miles from the lakefront mansions and pristine skyscrapers of downtown Minneapolis, the streets of the Hawthorne neighborhood were once littered with the shattered glass of stolen cars. Nearly half the ramshackle houses were so dangerous that they failed city inspection. And almost one-quarter of the area's residents had no telephones to call 911 -- which was terrifying, considering that drug lords from Chicago had migrated north to Hawthorne in the mid-90s, turning its streets into gangland bullet zones and helping to send its per capita murder rate 70% higher than that of New York. The idyllic Minnesota metropolis once known as the City of Nice was getting a new nickname: ''Murderapolis.''

Today, Hawthorne's homicides are down by 32%, and robberies have fallen 56%. Crack houses have been bulldozed to make way for a new elementary school. And dilapidated houses at the neighborhood's core have been rebuilt. Much of the credit for the turnaround goes to Minneapolis-based General Mills Inc. When the city's murder rate spiraled to record highs in 1996, executives at the cereal giant seemed to take it personally. They hired a consultant to analyze crime data and identified Hawthorne, just five miles away from the General Mills headquarters, as one of the city's most violent neighborhoods. Working with law enforcement, politicians, community leaders, and residents in what became known as the ''Hawthorne Huddle,'' General Mills pumped in $ 2.5 million dollars, donated thousands of employee hours, and devoted untold amounts of MBA-seasoned leadership to help Hawthorne rid itself of blight.

That sort of generosity is nothing new at General Mills. The company, which features prominently in BusinessWeek's first-ever ranking of the most generous corporate philanthropists, has a tradition of giving that dates from the late 1800s, when it built an orphanage that continues to this day as a child guidance center. Last year alone, General Mills gave away $ 65 million, out of its revenues of $ 10.5 billion. The money went to a range of causes, from education and the arts to social services. More than a third of that sum was made up of in-kind donations: Every day, the company ships three semi-trailer trucks full of Cheerios, Wheaties, and other packaged goods to food banks around the country. Throughout General Mills, the message is loud and clear that good corporate citizenship doesn't end with the bottom line -- community involvement is reflected in performance reviews for top executives. Says Christina L. Shea, president of the General Mills Foundation: ''We take as innovative an approach in giving back to our communities as we do in our business.''

It's an impressive commitment -- and it raises a long-debated question: At a time when companies are under fire to save every penny they can, what, if anything, do they owe the communities in which they do business? Should for-profit corporations be in the business of giving away shareholders' money, of taking on causes, of attempting to nurture the social consciences of their employees? To famed economist Milton Friedman, chief executive officers who talked about such things were merely displaying one of their ''suicidal impulses.'' The notion that businesses should aim to avoid pollution, say, or donate resources to a neighborhood was ''pure and unadulterated socialism,'' the Nobel laureate wrote in 1970. Corporations, Friedman argued, had but one purpose: to increase profits as much as was humanly possible. If you're feeling generous, give the money to shareholders. Let them play Santa Claus.

Self-Interest

MANY COMPANIES, OF COURSE, would argue that funding causes that improve the lives of their employees, their customers, and those who live in their communities is completely within their self interest. In addition, corporate philanthropy is often evaluated in relation to the for-profit mission. Education, for example, is popular across the board, since every company needs to have a well-trained workforce.

In the efficiency-obsessed 1980s and '90s, the Milton Friedman-type attitude gained ground, and General Mills-style charity became an old-school oddity. There are still plenty of companies, however, that believe giving is good. When BusinessWeek polled companies in the Standard & Poor's 500-stock index, only four out of 218 respondents agreed with Friedman's famous tenet that ''the business of business is business.'' The rest told us that giving was absolutely the right thing for them to do. But in a sense, Friedman has prevailed: Our survey also revealed that companies are finding increasingly creative ways to merge charity with the needs of the corporation.

Getting a handle on the scale of corporate philanthropy is no easy task. There's no requirement for public disclosure of corporate contributions. Thus, our ranking depended on voluntary disclosure of contributions by S&P 500 companies. Certainly, the companies who weighed in are most likely the ones with the strongest philanthropic histories.

It was even harder to rank the corporate givers, since no standard benchmark exists for how companies should measure donations. Not surprisingly, super-size Wal-Mart Stores Inc. gave far more than any other company last year: $ 156 million in cash. The other largest contributors included such giants as Ford Motor ($ 131 million), Altria Group ($ 113.4 million), SBC Communications ($ 100 million), and Exxon Mobil ($ 97.2 million). But to measure generosity, we scored companies on a ratio of philanthropy to revenues. We broke out monetary gifts from in-kind gifts because some industries -- software, drugs -- lend themselves more easily to giving away their products. Also, companies have vastly different definitions for what constitutes in-kind giving.

What we ended up with is a snapshot of the biggest players in corporate philanthropy. Their survey responses, taken together with interviews of corporate foundation heads, nonprofit CEOs, and academic scholars, reflect the degree to which philanthropy is still an integral component of corporate cultures -- and in many cases, has become integrated into business strategy itself. Some want to build morale among workers and ties in their communities. Others are fostering an emotional bond with consumers. And for companies that operate in far-flung corners of the globe, local charity can be seen as a cost of doing business.

When that happens, the lines between public works and purchasing goodwill can get blurred. Take New Orleans' Freeport-McMoRan Copper & Gold Inc., which had the highest ratio of cash philanthropy to revenues on our list. There's a reason for that: In the idyllic Indonesian island province of Papua, Freeport operates the mammoth Grasberg mine -- an engineering marvel that encompasses the largest gold reserve in the world. The mine also sits directly atop a mountain sacred to the indigenous Amungme tribe, which has inhabited the island for thousands of years. Tensions between Papuans and Freeport grew so fierce in 1996 that Freeport stopped mining operations for several days in reaction to a series of riots. To improve their standing with the people of Papua, Freeport and its local subsidiary vowed to start donating 1% of local annual revenues, to be disbursed by a board composed of local and company officials. That sum totaled $ 14.8 million last year alone. Paired with Freeport's domestic donations, the company's total gifts reached $ 16.8 million.

''Greenwash''

TODAY, THE Amungme have new hospitals, scholarships for local children to study domestically and abroad, new community centers, and clean drinking water. But critics say they also have to live with Freeport's pollution, alleged human-rights abuses, and close relationship with the Indonesian government, whose paramilitaries provide the mine with its security forces. ''What we are talking about is greenwash,'' says Pratap Chatterjee, program director of CorpWatch, a watchdog group in Oakland, Calif. ''The company is attempting to improve its image by giving people baubles, trinkets, and beads. It doesn't mean that it is going to change the environmental impact. Pollution can last centuries.'' That, of course, is not how Freeport executives see it. Spokesperson Bill Collier says: ''The programs speak for themselves. They've done a great deal to improve the lives of Papuans.''

Many big companies are upfront about their desire to use philanthropy to polish their image. In an age of social activism and instant communication, when a Web log can energize a mass boycott overnight, some say it's essential to build a public narrative about your company as a good global citizen. Thus, we found pharmaceutical companies Merck and Pfizer working to stem the spread of infectious diseases; network-equipment maker Cisco providing voice mail to the homeless; and bank Washington Mutual building affordable housing near its branches.

There is a sort of halo effect, too: Workers who feel good about their company stick around, according to many of the companies we interviewed. ''It pays a dividend to employees and it allows us to attract good employees,'' says James Flaws, vice-chairman and chief financial officer of Corning, which supports the Corning Museum of Glass and local community initiatives. These companies also believe that their philanthropic endeavors give them a crucial edge with consumers who are demanding that the businesses they support produce not only good products but also stellar track records as corporate citizens. ''Philanthropy is a critical part of our brand,'' says Thomas A. King, president of the Eli Lilly and Co. Foundation, which aims every year to be among the top corporate donors. ''People associate Lilly with being a caring, generous company.''

Some companies even see philanthropy as a way to get closer to customers. Software giant Computer Associates International Inc. acknowledges that for years it had a poor reputation for the way it treated clients. Sanjay Kumar, who took over as CEO three years ago, has been trying to change that. In a program started in September 2002, CA pairs 75 of its employees with 75 from customers such as Pier 1 Imports and Exxon Mobil. Together they build playgrounds in needy areas. ''It has proved to be a really good opportunity for us to engage our customer in a unique environment,'' says Lisa Platania, CA's director of community relations.

Of course, just because a company gives lots of its shareholders' money away doesn't mean that it has a heart of gold. Enron Corp. donated heavily to board member John Mendelson's cancer research center. And L. Dennis Kozlowski, the former CEO of Tyco International Ltd. who is now in court fighting charges that he looted the company, allegedly used more than $ 40 million of Tyco funds to make charitable contributions that either benefited him or that he represented as his personal donations.

Increasingly, the most prominent corporate givers are going beyond just scrawling checks or donating warehouses full of computers. One of the most interesting developments in corporate philanthropy rarely gets captured in the monetary and in-kind tallies. More companies are sharing their skills with their counterparts in the world of social agencies. Boston's Bain & Co. created a nonprofit called Bridgespan Group that focuses on giving cash-strapped charities sustained, world-class consulting advice at steep discounts. And when Goldman, Sachs & Co. decided to support UNA-USA, helping the organization to set up U.N.-like student debate programs, it gave more than just a $ 1 million grant. In addition, Alison Mass, a Goldman Sachs managing director, lent a New York advisory board her expertise on finance and strategic planning. ''By just writing checks, you are really undermining the full potential of the social value you can produce,'' says James E. Austin, chair of the Initiative on Social Enterprise at Harvard Business School.

Big Ideas

THIS ''CORE COMPETENCY'' movement excites community leaders because it shows that companies are thinking about their impact on the social sector with the same rigor and discipline they apply to business activities. Rather than sprinkling a few dollars among the local Girl Scout troops and Little League teams, businesses are attempting to solve large-scale community issues through strategic planning, prudent budgeting, and in many instances, the same accountability measures they use to evaluate their business. In the end, nonprofits can most use that which gives shareholders their highest returns: the ideas of the most creative workers. Imagine if companies, on a grand scale, started donating that.

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